A monetary transaction typically involves a payor providing funds to a payee for goods or services rendered. One common way for a payor to provide funds to a payee is in the form of a check. A check is a physical document which includes payor account information and can be filled out by a payor to pay the payee. The payee is then required to go to a bank or other financial institution to deposit the check for payment in cash or into the payee's account. The bank uses the information provided on the check to determine the amount of funds to transfer from what account and to whom in order to deposit the funds in the payee's account or give directly to the payee.
This system of transferring funds between a payor and a payee using a physical document, such as a check, presents several challenges. First, the check is susceptible to fraud. The physical document can be tampered with to change what amount and to whom funds should be given to. In addition, there is no way for the payee, based on visual inspection of the check alone, to determine whether or not the account the check is drawing funds from has sufficient funds. Furthermore, it is not always convenient for a payee to travel to an appropriate financial institution to deposit the check. This can result in a delay in depositing the check by the payee which could lead to the check becoming lost or a decrease in the amount of funds available in the account to cover the amount written on the check in the interim.
In addition, the check clearing system based on the exchange of physical documents can be costly and add time delays to the check clearing process due to transportation and processing of large volumes of physical documents. In the United States of America, prior to 2004 if a payee deposited a check written by a payor from one bank into an account at a different bank, the banks would have to physically exchange the paper check before the money would be credited to the account. In 2004 the Check Clearing for the 21st Century Act (Check21 Act) was passed in the United States which makes the digital image of a check legally acceptable for payment purposes in the same manner as a traditional paper check. Under the Check21 Act, rather than exchanging paper checks between banks when a payee deposits a check, one bank can simply send an image of the check to the other bank.
Remote deposit capture (RDC) is a system by which payees can take advantage of the Check21 Act to deposit a check into a bank account from a remote location without having to physically deliver the check to the bank. RDC involves the payee taking a digital image of a check and transmitting that image to a bank for deposit. RDC is different than systems such as direct deposit, where an employee's earnings are posted directly to his or her bank account, or online deposit in which a retail banking service allows an authorized payee to record a check for deposit and have it posted to the payee's account prior to mailing in the physical check to the bank, giving the payee access to the funds before the check has been cleared by the bank.
The ability to pass value and payments remotely, quickly, efficiently, economically, and securely enables many conveniences of modern life including internet sales, and electronic peer-to-peer transactions, such as over eBay®. Physical payments, such as by mailing a check or cash, can be slow, expensive, and insecure. Additionally, users/check writers may make mistakes when writing checks, such as mistyping the payee's name. Carrying cash can be problematic from the standpoint of pickpocketing and other forms of theft that can present a personal security threat to an individual (i.e. armed robbery or muggings).
As a result, financial transactions are commonly made by way of electronic communications networks to purchase a variety of goods and services. Such transactions may be processed in a variety of methods using a variety of processors including, for example, credit card companies, debit card companies, automated clearing house (ACH) transactions, and other third party processors such as PayPal®.
Credit cards and debit cards operate on closed proprietary networks to which a payee has to subscribe, such as by having a merchant account. Furthermore, a merchant may be required to have specialized equipment to carry out transactions using credit cards and debit cards. Often times, credit card and debit card transactions can be very expensive (up to 3% of the transaction), due to fees charged by the credit card companies and the credit card processors. Due to the transaction fees, the risk of transaction reversals resulting from disputes, and other risks and inconveniences, some merchants are unwilling to accept credit cards and debit cards for transacting.
FIGS. 1 and 2 illustrate examples of conventional transactions between a maker 100 and a payee 110 in which a paper check 70 is physically sent to the payee 110 by the maker 100. The paper check 70 is presented to a bank of first deposit 120 and the paper check continues through the clearance process as a paper check (FIG. 1) or an image 80 of the paper check 70 (FIG. 2) until it reaches the maker's 100 paying bank 130.